Lines of Credit Home Loans
A Line of Credit (also referred to as an Equity loan) is a flexible way enables you to access equity you’ve built up in your home, through extra repayments or capital gain.
This type of loan grants you swift access to your property’s equity- you can withdraw a lump sum, or smaller amounts over a period, up to your approved line of credit limit, which can be utilized for various purposes such as investments and home improvements.
Unlike personal loans or credit cards, you don’t need to make monthly repayments which makes them a flexible option for investors.
Here is a quick example
Let’s say you bought a home for $500,000 and put down a $100,000 deposit, meaning your home loan is $400,000
- Purchase value (today): $500,000
- Home Loan (today): $400,000
- Equity (today): $100,000
So equity is the part you contributed, not the property’s value even it’s worth $500,000.
Here comes the exciting part! If the home’s value increases, let’s say after 5 years, to $700,000 and you had also paid down the loan to $350,000…
- Purchase value (+ 5 years): $700,000
- Home Loan (+ 5 years): $350,000
- Equity (+5 years): $700,000-$350,000= $350,000
Your equity has grown to $350,000 and LVR of your loan has been reduced to 50%.
Why does equity matters?
Equity is considered as an asset that contributes towards your net worth.
You are able to withdraw part or all of the equity in the future (sometimes called ‘cash out’) from your property for various reasons, such as buying your next home, funding your retirement, or even renovating the current home.
